Final Thoughts

“Not until Nucor Gallatin and SDI Sinton get up and fully running in Q1/Q2 will prices start to ease.”

“The capacity that is yet to come on needs to get here just to replace what is still offline. Maybe prices come down sometime next year.” 

“The increased capacity will have little influence on pricing. This market is only partially driven by true fundamentals. Many industry experts underestimate the fact that mill consolidation and changes in mill leadership have led to more control and discipline. Add import tariffs and booming demand, and you have pricing momentum that will not easily (nor quickly) reverse.”

“The new capacity will probably create a plateauing effect, but it will only replace the tonnages that are being taken offline. And make no mistake, the ‘new capacity’ is coming online very, very slowly. Much to the chagrin of some pundits/analysts/experts, the direction of steel pricing won’t reverse course in earnest until the calendar reads 2022.”

“There’s an assumption that imports may peak in July/August and then ease up until later in the year when they are expected to rise again. If for some reason import arrivals rise further and remain higher from August through the balance of the year, that could bring about some changes. But on the domestic front, it’s looking more likely that actual output and real orders tied to new capacity are going to be minimal in 2021, but will be more meaningful starting in Q1 2022.”

“With respect to additional supply, whether from foreign or domestic, there still seems to be a great deal of underlying demand that is ready to absorb the additional tons. Nearly every manufacturer is advising they have more orders than they can meet and are being held back by lack of labor and materials/supplies. It’s impossible to measure this ‘shadow demand,’ but every new ton that gets offered gets taken these days (by manufacturers). This is not a short-term phenomenon. And we all know what’s coming once the automotive industry is able to go full bore.”

“Almost a dollar per pound for hot roll has to be near the top, right?”

A sure sign that the gap between supply and demand is narrowing would be the appearance of more tons on the spot market. But that has not happened yet to any significant degree.

“We’re seeing a few more spot tons quoted, but it’s still very subdued.” 

“We are ‘hearing’ of potential opening of spot tons for September and October, but very little has come to fruition.”  

“We’re hearing rumors of such things, but we’ve actually seen a reduction in spot tons, if anything.”

SMU also asked: Are you seeing any easing of spot pricing?

“No, the mills continue to get whatever number they throw out. Buyers have no choice if they need tons.”

“We are receiving spot pricing and material availability updates on a daily basis. Most mill quotes are valid for 24 hours. There is zero negotiating from quoted prices.”

“No, not from the mills, but the service center pricing is more of a ‘give-and-take’ scenario… One would expect this development to occur in the early phases of a market normalization process.”

Meanwhile – even though most are skeptical of a big price correction anytime soon – buyers are being very conservative when it comes to inventory:

“We are only buying material for which we have hard copy purchase orders in hand. We are purchasing no speculative tons nor any offshore tons at this time. We have had a very strong first half of 2021, and we will not repeat mistakes from the past by taking unnecessary risks. The combination of record high prices and extended lead times continue to weigh heavily on our forward buying and inventory strategies.”

“We have obvious concerns about holding inventory at today’s market prices and began backing off on buys about eight weeks ago. On one hand, we can’t sell from an empty wagon. But on the other hand, we also can’t have the highest priced steel still sitting in inventory six months after the peak because we were asleep at the switch.”

“Inventory is obviously a concern (and should be for every service center with half a brain). But we are being smart and, dare I say, disciplined, on what and how we buy. In an odd way, that discipline will only prop up this historic bull market that much longer. It ain’t over yet.”

SMU Events

SMU’s Community Chat webinar beginning at 11 a.m. ET on Wednesday, Aug. 11, will present a tutorial on how to use the online platform for the 2021 SMU Steel Summit Conference set for Aug. 23-25 in Atlanta. Anyone planning to attend in person or virtually is encouraged to sit in on the brief training session that will enhance your conference experience. We will also go over the extensive safety protocols that will be in place to make sure attendees can be free of COVID concerns. You can register by clicking here.

As always, your business is truly appreciated by all of us here at Steel Market Update.

Tim Triplett, Executive Editor, Tim@SteelMarketUpdate.com